2011 results announcement · publicly traded company with a market capitalization in excess of...
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2011 Results Announcement2011 Results Announcement
WINSWAY COKING COAL HOLDINGS LIMITEDWINSWAY COKING COAL HOLDINGS LIMITED2727thth March 2012March 20122727 March 2012March 2012
I. 2011 ReviewI. 2011 Review
Major Milestones 2011Major Milestones 2011
Apr 2011•Successfully
May 2011•The private railway line forJining Qisumu LogisticCenter was connected tothe public railway network•Ceke Logistics Centercommenced trail operation
Nov 2011•Winsway and Marubeniestablished a jointventure to acquireGrande Cache CoalCorporation
Dec 2011•Peabody Energy acquired a 5.1percent equity interest inWinsway through a series ofpurchases of Winsway’s Shareson the HKEX
Jan 2011•Established a jointventure, Inner MongoliaHuayuan LogisticCompany Limited, with asubsidiary of HohhotRailway Bureau, tosecure additional railwaytransportation capacity
•SuccessfullyissuedUS$500,000,000senior note due2016
July 2011•The construction of the coalprocessing plants at Jining,Bayuquan port and Longkouport was completed; each ofthese three processing plantshas an annual coal processingcapacity of 4 million tonnes•Erlianhaote Logistics Centerwas completed andcommenced operation
Oct 2011•A memorandum of understandingwith Peabody Energy in respect of aproposed joint venture to marketcoal in China and the Asia PacificRegion•A ten-year strategic allianceagreement with MAK, pursuant towhich MAK will supply no less than3 million tonnes to Winsway a year
3
InfrastructureInfrastructure
Longkou Processing PlantLongkou Processing Plant Yingkou Processing PlantYingkou Processing Plant
Jining Processing PlantJining Processing Plant Ceke Logistic ParkCeke Logistic Park
4
Our Customers and SuppliersOur Customers and Suppliers
Customers RegionAmount
(HK$’ Million)
Liu Steel Guangxi 1,281
Sha Steel Jiangsu 1,041
Marubeni Corporation Japan 828
Wuhan Steel Hubei 595
Bao steel Shanghai 518
SuppliersAmount
(HK$’ Million)
Moveday Enterprises Limited 1,533Mongolian Mining Corporation 1,156Mongolyn Alt (MAK) Corporation 723SouthGobi Sand LLC 333
Note: Coal purchased from Moveday was mined by Tavan Tolgoi Corporation. Moveday also provided transportation service with a total value of HK$495 million in the year 2011. Our supplier base of Mongolian coal includes many of the major coking coal suppliers in Mongolia.
Top 5 Customers (2011)Top 5 Customers (2011) Top Mongolian Suppliers (2011)Top Mongolian Suppliers (2011)
5
Mongolian Mining Corporation
Mongolian Mining Corporation
Long term agreement
3 years
Up to
Mongolian Mining Corporation
Long term agreement
3 years
Up to
Long term agreement
5 years
Min.
Long term agreement
5 years
Min.
Long term agreement
10 years
5.0mt/year
Long term agreement
10 years
5.0mt/year
MongolianCoal
Suppliers
MongolianCoal
Suppliers
Long term agreement
3.0mt/year
Long term agreement
3.0mt/year
Purchase contract
0.2mt
Purchase contract
0.2mt
Others
Long Term Agreements and Long Term Agreements and Purchase ContractsPurchase Contracts
Up to 2.0mt/year
Up to 2.0mt/year
Min. 2.0mt/year
Min. 2.0mt/year
5.0mt/year or
50% output
5.0mt/year or
50% output
Seaborne Coal
Suppliers
Seaborne Coal
SuppliersA combination of long-term agreements and spot contractsA combination of long-term agreements and spot contracts
Others
3.0mt/year3.0mt/year 0.2mt (Q4 2010)
0.2mt (Q4 2010)
II. Financial II. Financial HighlightsHighlightsHighlightsHighlights
5,283
9,27211,610
0
4,000
8,000
12,000
Our Scale and GrowthOur Scale and Growth
2.2
4.76.9
2.9
3.12.2
5.1
7.89.1
1
2
4
8
2009 2010 2011
Total Sales VolumeTotal Sales Volume Total RevenueTotal Revenue
(mt)
(HK
D in
mill
ions
)
02009 2010 2011
2009 2010 2011Mongolian coal Seaborne coal
961
2,118 2,197
0
1000
2000
3000
2009 2010 2011
Gross Profit Gross Profit Mongolian & Seaborne Coal Procurement VolumeMongolian & Seaborne Coal Procurement Volume
3.8
6.5 7.0
3.4
3.1 2.6 7.2
9.6 9.6
0
2
4
6
8
10
2009 2010 2011Mongolian coal Seaborne coal 8
(mt)
(HK
D in
mill
ions
)
ProfitabilityProfitability
515
929 1,052
0
400
800
1,200
101 119 116
25
50
75
100
125
Net Profit Net Profit Net Profit per Tonne Net Profit per Tonne
(HK
D in
mill
ions
)
(HK
D)
02009 2010 2011
0.24
0.35 0.28
0
0.1
0.2
0.3
0.4
2009 2010 2011
252009 2010 2011
Earnings Per Share Earnings Per Share
9
(HK
D)
Note: Weighted average number of - ordinary shares (basic) as at 31 December : 3,785,420 ,000
4,000 8,000 20,000
Balance SheetBalance Sheet
Total AssetsTotal Assets Total EquityTotal Equity Cash BalanceCash Balance
277
2,894 3,138
0
1,000
2,000
3,000
2009 2010 2011
1,144
6,545 7,273
0
2,000
4,000
6,000
2009 2010 2011
4,498
9,123
16,340
0
5,000
10,000
15,000
2009 2010 2011
10
(HK
D in
mill
ions
)
(HK
D in
mill
ions
)
(HK
D in
mill
ions
)
Cash FlowCash Flow
Operating Cash FlowOperating Cash Flow Investing Cash FlowInvesting Cash Flow Financing Cash FlowFinancing Cash Flow
400
550
(647)
0 4,000
11
(363)
47
376
(350)
(200)
(50)
100
250
400
2009 2010 2011
(2,852)
(3,000)
(2,000)
(1,000)
2009 2010 2011
1,165
3,569
2,627
0
1,000
2,000
3,000
2009 2010 2011
(HK
D in
mill
ions
)
(HK
D in
mill
ions
)
(HK
D in
mill
ions
)
(1,056)
Strong Working Capital ManagementStrong Working Capital Management
28 33
48
0
10
20
30
40
50
31 30
61
0
20
40
60
A/R Turnover DaysA/R Turnover Days A/P Turnover DaysA/P Turnover Days
2009 2010 2011 2009 2010 2011
66 80
113
0
30
60
90
120
2009 2010 2011
Inventory Turnover DaysInventory Turnover Days
12
Healthy Credit RatiosHealthy Credit Ratios
2.3x
1.3x
2.8x
Total Debt/EBITDATotal Debt/EBITDA
10%
20%
30%
1
2
3
4
5
4.4%
FCCRFCCR PSIPSI
4.2x
2.75x 15%
2009 2010 2011
Total Debt/EquityTotal Debt/Equity
132.0%
16.4%
62.2%
2009 2010 2011
1.2x
3.2x
2.4x
2009 2010 2011 13
0%0
Current RatioCurrent Ratio
2011
III. A Transformational III. A Transformational AcquisitionAcquisitionAcquisitionAcquisition
Grande Cache Coal shareholders realize compelling v alue
� All cash consideration of C$10.00 per share provides certainty in volatile markets
� 70% premium based on Grande Cache Coal’s closing price on the TSX on 28 October 2011
� Total offer value of approximately C$983 million(1) (60% Winsway ownership)
A transformational transaction for Winsway
Transaction HighlightsTransaction Highlights
15
� Proven producing asset with significant expansion potential
� Planned production growth to 3.5 million tonnes per annum and 30+ year mine life
� First major step in vertical integration through upstream investment in mining assets
� Platform for growth in a world-class coal mining region
� Diversifies Winsway’s political and geographic risk profile
� Marubeni Corporation (“Marubeni”) is a strong partner (40% ownership)
� Significant synergy potential
� Grande Cache Coal’s low-volatility coking coal provides excellent blending stock
(1) 1 C$ = 1.0082 US$ as at 28 October 2011
� Pure play metallurgical coal mining company
� Headquartered in Calgary, Alberta
� Listed on the Toronto Stock Exchange (TSX: GCE)
� Primary asset is the Smoky River Coalfield in West Central Alberta
� 14 coal leases held totaling over 22,000 hectares
Western CanadaWestern Canada
British Colombia
Alberta
Smoky River Coalfield
Calgary Head OfficeWestshore Terminals Port
(Vancouver )
Grande Cache Coal OverviewGrande Cache Coal Overview
16
� Operating both surface and underground mines
� Experienced management team
� Employs over 625 individuals on a full time basis
� Strong financial position as of 30 June 2011• C$21 million cash• No debt• C$75 million finance leases
Surface Mining OperationsSurface Mining Operations
(Vancouver )
Grande Cache Coal Pit 8Grande Cache Coal Pit 8
17
Grande Cache CoalGrande Cache Coal
18
A Transformational TransactionA Transformational Transaction
Proven producing asset with significant expansion p otential
First major step in vertical integration through up stream investment in mining assets
Platform for growth in a world-class coal mining re gion
19
Diversifies Winsway’s political and geographic risk profile
Marubeni is a strong partner
Significant synergy potential
Low-volatility coking coal provides excellent blend ing stock
Coal LeasesCoal Leases
Ownership: 100% Grande Cache Coal
Location: West Central Alberta, Canada
Coal Leases: 14 leases, over 22,000 hectares
Primary Product: Low-volatility hard coking coal
Mine Life: 30+ years
Operation: Surface and underground mines
Plant Capacity: 3+ million tonnes
Production: 1.4 million tonnes in FY2011
Smoky River Coal FieldSmoky River Coal Field
Proven Producing Asset with SignificantProven Producing Asset with SignificantProduction Expansion PotentialProduction Expansion Potential
20
Production: 1.4 million tonnes in FY2011
� Currently operating in the No. 8 surface pits and No. 7 underground
� Development production underway at the No. 12 South B2 underground, which will replace No.7
� Planned production growth to an annual run rate of 3.5 million tonnes by the end of fiscal 2013
• Further growth beyond 3.5 million tonnes to be studied
� Expansion largely complete after significant capex program in fiscal 2010 and 2011
� Handling agreement with Westshore Terminals that allows for increased volumes from mine expansion
Note: Grande Cache Coal’s fiscal year end is March 31 (e.g. FY2011 is 12 months ended 31 March 2011). Fiscal years referenced on this page are Grande Cache Coal’s fiscal year end.
� Current 137 million tonne run-of-mine reserve supports a 30+ year mine life
� Reserves are contained within a total measured, indicated and inferred resource base of 346 million tonnes
• Will perform further drilling intended to convert a portion of these resources into reserves, increasing life of mine
� 14 coal leases held totaling over 22,000 hectares• Potential for resource expansion
Proven & Probable Proven & Probable Measured & Measured, Indicated &
Significant Reserve and ResourceSignificant Reserve and ResourceExpansion PotentialExpansion Potential
21
Source: Grande Cache Coal 2011 NI 43-101 Technical Report effective 31 March 2011. Coal resources are inclusive of coal reserves.
Proven & Probable ROM Reserves
Proven & Probable Saleable Reserves
Measured & Indicated Inferred
Measured, Indicated & Inferred
(mt) (mt) (mt) (mt) (mt)Surface Mining Areas
No. 2 19.0 13.6 68.8 7.0 75.8No. 8 25.0 17.1 58.6 3.1 61.7No. 12 South A 11.0 7.9 26.2 9.3 35.5No. 12 South B2 – – 3.6 0.5 4.1No. 12 North 43.5 31.1 54.7 2.6 57.3No. 16 29.3 21.4 76.2 22.0 98.2
Total Surface Mining Areas 127.7 91.0 288.1 44.5 332.6
Underground AreasNo. 7 Underground 1.0 0.7 1.1 – 1.1No. 12 South B2 Underground 8.2 5.9 11.6 0.7 12.3
Total Underground Areas 9.2 6.5 12.7 0.7 13.4
Grand Total 136.9 97.5 300.8 45.2 346.0
Future Open Pit Mining AreasFuture Open Pit Mining Areas
No 9GNo. 16
No. 12 NorthNo. 2
No 8 West
No. 12 South A
22
� With the acquisition of Grande Cache Coal, Winsway becomes vertically integrated from mining, sourcing third party coal, logistics, processing, blending and marketing
� Complements the existing Peabody-Winsway JV, which is conducting exploration in Mongolia and provides further long-term growth potential for Winsway’s upstream business
Upstream Assets Significantly Strengthen Winsway’s Business ModelUpstream Assets Significantly Strengthen Winsway’s Business Model
Winsway’s Mongolian Coal BusinessWinsway’s Own
ResourcesWinsway’s Own
Resources
Vertical Integration through Vertical Integration through Upstream Investment in Mining AssetsUpstream Investment in Mining Assets
23
Winsway’s Seaborne Coal BusinessThird Party SuppliersThird Party Suppliers
Steel Makers / Coke Plants
Steel Makers / Coke Plants
Coal Processing
Coal Processing RailwayRailway
Border Crossingand
Transportation in Mongolia
Border Crossingand
Transportation in Mongolia
PortPort Coal ProcessingCoal Processing
ResourcesResources
� Long-term agreements and purchase contracts with key Mongolian suppliers
� Long-term agreements and spot contracts with seaborne suppliers
� 60% ownership of Grande Cache Coal
� 50% interest in Peabody-Winsway JV
� Platform for further expansion in one of the world’s major high-quality coking coal producing regions
� Proven platform with access to rail and long-term port capacity
� Winsway estimates that a greenfield startup in Western Canada would take 3-5 years
� One of only four major coking-coal producing companies in Western
World-class Coal Mining RegionWorld-class Coal Mining Region
Platform for Growth in a WorldPlatform for Growth in a World--classclassCoal Mining RegionCoal Mining Region
24
producing companies in Western Canada (Teck, Walter, Anglo American’s Peace River Coal)
� Grande Cache Coal’s experienced management team will facilitate expansion efforts involving existing operations and external opportunities
� Grande Cache Coal provides upstream assets in a politically stable jurisdiction with a clear regulatory framework
� Grande Cache Coal’s Canadian coal will be coupled with Winsway’s current supply from third party sources:
• Mongolia• Seaborne (Australia, Canada, US and Russia)
Winsway Operations
Operations include logistics parks,
Grande Cache Coal Operations
Diversifies Diversifies Winsway’sWinsway’s Political and Political and Geographic Risk ProfileGeographic Risk Profile
25
Operations include logistics parks, coal processing plants, border crossing facilities, and Peabody-Winsway Mongolia coal projects
Source of Supply to Winsway
Other Country
Smoky River Coalfield with access to Asian markets through a long-term handling agreement with Westshore Terminals
� Headquartered in Tokyo, Japan
� Publicly traded company with a market capitalization in excess of US$10.7 billion as of 28 October 2011
� Total revenues of US$44.4 billion for fiscal year ended 31 March 2011
� One of the largest trading houses in Japan • Involved in metal, minerals and energy
resources, food products and materials, paper and pulp, chemicals, textiles,
Marubeni Australian Coal OperationsMarubeni Australian Coal Operations
1345
NSW
QLDWASA
NT
2
Marubeni is a Strong PartnerMarubeni is a Strong Partner
26
paper and pulp, chemicals, textiles, transportation machinery, electric power and other infrastructure projects
• Traded 14 million tonnes of coal in the 2010 Japanese fiscal year ended 31 March 2011
� Invested in various Australian coal mines with equity coal output during the 2010 Japanese fiscal year of 5.8 million tonnes
� Involved in the Canadian coal industry since the 1960s
• Senior coal management and geologists have spent several years stationed in Canada and have relationships with rail and port operators and local coal industry management teams
45
8
Lake Vermont (33.33%)
Hail Creek (6.67%)
Coppabella / Moorvale /Codrilla (7.00%)
German Creek East (13.64%)
Dartbrook (16.67%)
Jellinbah East (38.33%)
1
2
3
45
6
7
8 Ravensworth UG (20.00%)
Macquarie (17.00%)
Operation (Ownership)
67
� Winsway and Marubeni expect to leverage their experience in the world’s two largest destinations for coking coal (China and Japan) to improve Grande Cache Coal’s marketing efficiency
• Marubeni has been an agent for coal produced from the Smoky River Coalfield into Japan for more than 30 years and has been sole sales agent since 2004
• Winsway has been one of Grande Cache Coal’s largest offtakers for China
Winsway’s Longkou Plant, East Coast of ChinaWinsway’s Longkou Plant, East Coast of China
Significant Synergy PotentialSignificant Synergy Potential
Coal’s largest offtakers for China
� Winsway and Marubeni will study ways to extract synergies using Winsway’s facilities on the East Coast of China to increase production efficiency and lower operating costs
� Winsway and Marubeni expect to leverage their other international partners’ operational expertise and infrastructure to improve Grande Cache Coal’s operations
27
Winsway’s Yingkou Plant, East Coast of ChinaWinsway’s Yingkou Plant, East Coast of China
� Winsway has built a strong position in the market due to its ability to supply various types of coking coal products with different characteristics, from around the world, to meet the requirements of its customers
� Grande Cache Coal produces high-quality, low-ash, low-volatile hard coking coal
• Blending opportunity to
Coal Distribution in Western CanadaCoal Distribution in Western Canada
Smoky River
LowLow--volatility Coking Coal Provides volatility Coking Coal Provides Excellent Blending StockExcellent Blending Stock
• Blending opportunity to complement medium and high-volatility coking coal from most of the world’s supply bases (China, Mongolia, Russia and the United States)
� China’s coal resources lack low-to-medium volatility, hard coking coal
• Low-volatility hard coking coal is becoming increasingly scarce worldwide
Low Volatile Bituminous - Anthracitic
Low - Medium Volatile Bituminous
High - Medium Volatile Bituminous
Sub-bituminous - High Volatile Bituminous
Lignitic - Sub-bituminous
River Coalfield
Source: Natural Resources Canada
28
� Upstream integration to provide sustained growth and to diversify supply base away from Mongolia-concentrated risks
� Secured access to low-volatility coking coal provides blending opportunities for Winsway’s volume driven business
Equity InvestorsEquity Investors Bond InvestorsBond Investors
� Expected acquisition financing is non-recourse to Winsway
� Grande Cache Coal is self-financed so no outgoing cash injections expected from Winsway in the near future
� Support of a strong strategic partner with a
Effectively Deploys Capital to Benefit BothEffectively Deploys Capital to Benefit BothEquity and Bond Investors in the LongEquity and Bond Investors in the Long--RunRun
29
� Over time, scarcity of global low-volatility coking coal supply and further industry consolidation will create significant opportunity for equity value appreciation
� Financed by cash on hand and potential low-cost acquisition financing
� Support of a strong strategic partner with a healthy balance sheet
� Expect to be in compliance with incurrence covenants based on consolidated financials upon closing
� Geographic and business diversification mitigates concentration risk
Outlooks
� 2012 will be a challenging year due to lack of strong demand in the first few months of the year
� Increasing thermal coal output from Inner Mongolian to compete with railway allocation for Republic of Mongolia coal
� Increasing coking coal output from
OutlookOutlook
Outlooks
� Cooperate with upstream suppliers to reduced inventory levels and still met the demands of our customers
� Synergy with Marubeni
� Improve marketing, operational, and logistics
� Reduce production cost and increase efficiency
� Increasing coking coal output from Mongolia
� Stagnant railway cpacity growth
� Coking coal market will most likely stablize during the second half of 2012 due to stronger global economic recovery
� Significantly more competition on the Chinese side
30
efficiency
� Countiune to imporve our working relationships with Chinese companies to further secure our allocation capacity
� Expand our logistic services for Mongolian iron ore import
IV. Q&AIV. Q&A